How Stock Market Changes Affect Estate Planning Concerns
By: Barry E. Haimo, Esq.
May 21, 2020
Besides changes in tax legislation, there is a myriad of reasons to revisit your estate plan on a regular basis. Stock market fluctuation (even when it’s on the rise) is one of them.
Stock market and subsequent interest rate changes can quickly alter the outcome of your estate plan, and unfortunately, this often occurs without executors understanding the consequences.
When you see the market change, a quick visit with your estate planning attorney can be incredibly valuable. You can ask about your options for maximizing current trends and potential consequences in order to shore up the future of your estate.
In this post, we’ll focus on two prominent ways we see the stock market affect our clients’ estate plans and offer sample solutions to fortify their estates.
An Estate’s Charitable Contributions
Many of our clients dedicate a certain portion of their assets to charity at the outset of estate plan development. One of the decisions you must make is exactly how much your charitable organization will get.
Some decide to leave a specific dollar amount, while others cap their contributions to a percentage of the estate’s liquid assets. When the stock market fluctuates, the implications vary widely depending on which route you choose.
Say your liquid asset values total $1 million. Fifty thousand dollars seems like a generous sum, but not so much that you can’t achieve other estate planning goals… until the stock market plummets and that $1 million-portfolio is suddenly worth half of that.
A charitable donation that was once equivalent to about 5 percent of your liquid assets has essentially doubled. Not what you intended, right? Your planning decisions can have a similar impact on your beneficiaries’ inheritances, as well.
Effects on Your Beneficiaries’ Inheritance
The other consideration to make is what route is best for each benefactor of your estate. In the same scenario above, say you’d chosen to give an equal 5 percent across the board to all benefactors — then the tables turn.
Where you’d originally intended for each party to receive $50,000 each, now they would each get only $25k. Also not aligned with your intentions.
This can happen when you assign various investments to different children, too. Say they are each named on a separate IRA account — one funded by you, the other by your spouse.
If they were opened through different fund companies, they aren’t likely to yield exactly the same return. Unfortunately, in our experience, we see how this can cause ill will.
Many clients actually use an equation that sets both upper and lower limits on distributions to help maintain their original intents. In our million-dollar example estate, you might consider bequeathing an equation like this:
My charity and children are to each receive $50,000 or 10 percent of my estate, whichever is less. This leaves room for market fluctuation and can help preserve close family relationships, while also shoring up the future of the rest of your estate.
Another option still? Set your charity distribution and let the kids choose how to split the IRAs. Ultimately, every estate plan is unique, contains a different set of assets, and depends on the owner’s final wishes.
The truly actionable item here for you is that you need to work with an experienced estate planning attorney in order to ensure the future of your legacy. They are the ones that can guide you in your estate planning decisions best.
If you aren’t positive about whether your estate will end up benefiting your loved ones exactly how you intend, reach out! We are here to help.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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